Sustainably greener - Green leases & sustainable development

Introduction

On behalf of the Property and Projects' Leasing Team here at DibbsBarker, we welcome you all back after the holiday season and wish you all the best for an eventful 2013.

To ease you back into the world of leasing, our first alert of the year draws your attention to some developments in the sphere of sustainable development practices and green leases.

Green leases revisited

In our February 2012 Landlord and Tenant Alert we provided a summary of green leases and their key concepts, namely, environmentally focussed objectives relating to sustainability or reduced energy consumption. Since then, we have seen an increasing number of green leases being circulated, each with its own variances. What is common throughout, however, is the concept of both the landlord and tenant collaborating and cooperating so as to achieve a desired environmental outcome.

As a part-occupier of a building, most tenants do not have the ability to provide much input towards a landlord's determination of its environmental targets and sustainability objectives. What tenants can do, however, is educate themselves as to the elements of a green lease so that when presented with a lease from a prospective landlord, the tenant will be aware of the key concepts and mechanics of green lease provisions and their potential impact. Conversely, landlords can also educate themselves on the impact of green leases on tenants so as to potentially develop green lease provisions that are more attractive to prospective tenants.

Green leases in the private sector

We all know the government sector is a strong advocate for green leasing practices, with the Department of Climate Change and Energy Efficiency releasing two publications in an attempt to further promote green leases in the private sector. The first publication, the Tenant's Guide to Green Leases, is targeted at commercial tenants as an introduction to green leases and is used as the focus of this alert. The second publication, the Green Lease Handbook, is tailored as a practice guide for lawyers involved in drafting and administering green leases with more technical discussions on how they operate.

Tenant's Guide to Green Leases

Despite the target audience, the Tenant's Guide to Green Leases is also useful for landlords who wish to gain a better understanding of the mechanics of a green lease. Not only does the guide provide readers with a practical overview of green leases, it also considers, as no one green lease is the same as another, some of the basic elements that are generally consistent across all green leases. The guide identifies five elements as being key to a successful green lease:

• Target environmental performance standards – the expectation is that environmental performance of a building will improve over time so as to achieve maximum operating efficiency by reference to environmental performance levels. Careful consideration should therefore be given to current and potential performance to ensure that environmental targets are tangible and attainable, as opposed to merely being aspirational statements.
• Metering and data reporting requirements – any measurement of performance requires collection and analysis of data. The more accurate the data, the more reliable the evidence to prove whether set environmental targets are being achieved. This may involve additional metering of tenancies and also sharing of data between landlords and tenants.
• Environmental Management Plan (EMP) – an EMP would effectively outline the strategies intended to be implemented by a landlord and tenant to achieve set targets on environmental performance. A review and an inventory of a building's mechanical and electrical systems and equipment would ordinarily be included, with a "fix and maintain" as opposed to a "fix and forget" building management practice.
• Building Management Committee (BMC) – a BMC, or environment management committee, would be charged with assisting in the implementation of green leases and EMPs. The BMC would comprise landlord and tenant representatives, with the additional option for instance of representatives from a tenant's IT department so as to provide feedback on the use of IT systems in a tenancy and its potential to directly or indirectly impact energy consumption.
• Remedial action / dispute resolution regime – as with any legal agreement, green leases should have a well-defined and articulated mechanism for resolving any disputes that may arise. Such dispute resolution regimes can be broadly categorised on the basis of their consequence as either "hard" (e.g. a breach of a green lease provision may lead to default of and possibly a right to terminate the lease), or "soft" (e.g. minimal or no consequence for breach of a green lease provision, which may result in less incentive to comply with the provisions in the first place). A "middle ground" approach is usually the most effective to ensure that achieving environmental targets remains the primary focus of the parties.

Summary

Green leases are still a relatively novel concept with no "one size fits all" provision that can be applied to all leases. The increased focus by government and now the private sector on green leases however has seen the development of standard practices and the identification of key elements of green leases, whether those elements are considered in the context of a small tenancy in a commercial building requiring a retrofit, or in a larger tenancy in a 4.5 star NABERS Energy rated development.

With both landlords and tenants becoming increasingly conscious of their role when it comes to achieving positive environmental outcomes, it makes sense for landlords and tenants to cooperate and develop relationships that not only balance each party's interest, but also achieve the common purpose of developing sustainably greener leasing practices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.